MEDIA STATEMENT: Release of Electricity Pricing Inquiry Draft Report

The Queensland Productivity Commission (QPC) today released its Electricity Pricing Inquiry Draft Report providing the State Government with a suite of recommendations to put downward pressure on prices and ensure electricity is delivered to customers at the most competitive price, while protecting consumers.

QPC Commissioner Kim Wood said during its Inquiry, the QPC had consulted widely and sought the views of interested stakeholders including consumers, electricity businesses, unions, business and industry and their advocacy bodies, farmers and irrigators, market and regulatory bodies, government agencies and councils.

The QPC has formed a Stakeholder Reference Group which provides advice to the Inquiry and held a series of public hearings and roundtables on electricity pricing during October and November 2015. The Commissioner has met with stakeholders in Bundaberg, Townsville, Toowoomba, Rockhampton, Mt Isa, Cairns and Brisbane.

“Following this consultation process and a thorough analysis of the options available, the QPC has made 54 draft recommendations for the Government’s consideration,” Mr Wood said.

Mr Wood said the QPC had investigated a range of issues including the costs and benefits of electricity price deregulation in south east Queensland, the level of competition in regional Queensland, electricity concessions, and the impact of emerging technologies and new business models.

“The QPC’s Draft Report has identified key priorities focused on serving the best interests of the Queensland economy and protecting vulnerable consumers,” he said.

In releasing the Draft Report, Mr Wood said the Inquiry was seeking further stakeholder feedback, which will be taken into account in developing the final report, due to be provided to the Government by the end of May 2016. Further consideration in the preparation of the final report needs to be given to tariffs, the potential disruptive effects of new technology, and to specific issues raised in stakeholder submissions.

“Delivering recommendations which assist the Government to develop new policies aimed at boosting economic growth and supporting higher living standards for Queenslanders has been central to the work of the Inquiry,” he said.

Mr Wood said since 2006-07, Queensland electricity prices had increased in real terms by 87 per cent driven by escalating network costs, and the costs of the Solar Bonus Scheme and the Australian Government’s Renewable Energy Target.

“While forecasting indicates a likely reduction in real electricity prices over the next five years, there are still opportunities for change within the electricity sector, to support the delivery of cost-efficient electricity supply.”

However, Mr Wood said the Draft Report highlighted there were no quick-fixes for lowering electricity supply costs. “Productivity improvements are needed across the electricity supply chain, particularly in the area of electricity networks,” he said.

“It is also important that governments facilitate the right framework to transition to a lower emissions economy in a way that supports the market providing electricity at least cost – including making best use of the electricity infrastructure that exists.”

The QPC has made draft recommendations in five key areas:

The need to support people doing it tough

The QPC recognises electricity prices are likely to impact the lowest income consumers more heavily. Reforming Queensland’s concessions framework is the single most tangible support the Queensland Government can provide to households genuinely vulnerable to the impacts of high electricity prices.

Queensland currently provides the general Electricity Rebate of $320.97 to Queensland Seniors Card holders, which is not means-tested, and is available to anyone over the age of 65, regardless of income. This means that some higher income households are able to access the electricity rebate, while some low income households remain ineligible.

The QPC recommends the Government considers making Health Care Card holders eligible for the electricity rebate. The QPC said the Government should consider the eligibility of Queensland Seniors Card holders, including grandfathering their eligibility or removing access entirely.

The QPC has identified opportunities for the Government to assist customers limited by tenancy and income to realise the benefits of tariff reform and opportunities for demand management and energy efficiency, including:

sharing of benefits in rental accommodation by ensuring landlords meet minimum standards of energy efficiency and demand management in their housing stock, and

supporting lower income households by establishing a complementary assistance program to subsidise the purchase price of energy efficient appliances for vulnerable consumers that have accessed the Home Energy Emergency Assistance Scheme due to the breakdown of their existing appliances.

The need to support businesses doing it tough

The QPC recognises that electricity prices can have a significant bearing on the competitiveness of Queensland businesses and industries, and for many it is difficult to reduce the costs of electricity or to find a substitute.

The QPC recommends continuing to move to standard business tariffs, including for farming and irrigation customers. It believes the variation in customers’ electricity use means a transitional tariff does not always guarantee the lowest electricity bill. Based on the Queensland Competition Authority’s estimates, 25 per cent of connections (around 8,700) would be better off on alternative tariffs.

For those that would be most impacted by moving to standard business tariffs, the QPC has recommended the Government consider some short-term industry assistance to help these businesses adjust by 2020.

Improving market competition

The QPC recommends deregulation of retail prices in south east Queensland from 1 July 2016, with retail competition expected to provide benefits for electricity customers. Our investigations suggest price regulation is acting as a barrier to customers realising the benefits of innovation evident in other deregulated markets.

The QPC supports the Government’s planned targeted education campaign to assist consumers in understanding the opportunities and benefits of fully participating in a competitive electricity market.

The QPC also recommends progressing toward increasing retail competition in regional Queensland, by moving the subsidy that supports the Uniform Tariff Policy to the Ergon Energy network business – therefore encouraging more retailers to enter the regional Queensland market, and broadening options for consumers.

It also agrees with the Government’s recent decision not to merge CS Energy and Stanwell Corporation Limited given the concentrated wholesale electricity market and the possibility of higher wholesale electricity prices.

Solar and renewables

The QPC has recommended the Government not intervene in the market to achieve its one million residential solar rooftops target, or the additional 3000 MW of residential and commercial PV target, by 2020.

Modelling projects that the 3000 MW target will be met by 2022 without government intervention, and a feedin-tariff of around 45 cents/Kwh would be required to bring forward this target by two years. This has not been recommended.

The QPC believes the Solar Bonus Scheme has done its job by stimulating the local solar PV industry and helping to make solar energy more affordable for Queenslanders. Therefore, the QPC has recommended the Government consider the merits of an earlier end to the Scheme than the planned 2028 closure.

The QPC estimates that by the middle of 2020, most participants will have recovered the costs of their systems. The Solar Bonus Scheme has added around $89 to an average household bill and around 9 per cent for an average business customer in 2015-16.

The QPC has also considered the Queensland Government’s 50% Renewable Energy Target by 2030, and will today provide its modelling to the Renewable Energy Expert Panel for its further consideration.

The QPC’s modelling suggests an average increase in retail electricity prices of 0.5 per cent for households and 0.3 per cent for industry, and a reduction of 0.7 per cent for commercial customers for the period 2015–16 to 2034–35 is required to meet the target. The report notes the benefits of a national approach rather than Queensland ‘going it alone’.

Governance and oversight

focusing on achieving savings from the merger of Energex and Ergon Energy under a holding company and also from the government-owned generators.

The QPC also supports the Government’s recent decisions about structural reform of the government-owned electricity businesses.

It agrees that CS Energy and Stanwell Corporation Limited should not be merged given impacts on competition in the wholesale market, and that operational efficiencies be pursued instead.

It also supports the Government’s decision to merge Energex and Ergon Energy as a means of finding efficiencies in the delivery of network services, but proposes the Government considers the structural separation of Ergon Energy (Retail) to support the development of competition in regional Queensland.

The QPC also recommends a voluntary code of conduct be developed by Queensland’s government-owned generators in respect of their rebidding strategy, and additional reporting requirements for those generators around their late re-bids. While regulators have found no evidence government-owned generators are acting outside the rules, this would provide greater confidence to stakeholders in the competitiveness of Queensland’s wholesale electricity market given concerns this rebidding strategy may have been used by generators to shift large volumes of capacity from low to very high prices late in trading cycles.

The QPC will test the findings and recommendations in the Draft Report with all interested stakeholders, and invites feedback. The closing date for written submissions is by 11 March 2016. Public meetings are also being scheduled for April 2016 in order for the QPC to receive further input. These are planned for Bundaberg, Townsville, Toowoomba, Rockhampton, Mt Isa, Cairns and Brisbane.
Further Information on locations and dates for public meetings will be provided on the QPC’s website. The full Draft Report is also available on the QPC’s website. The Final Report for the Electricity Pricing Inquiry is due to be delivered to Government by 31 May 2016.

About the Queensland Productivity Commission

The Queensland Productivity Commission (QPC) is the State’s independent economic review body established to review complex economic and regulatory issues and propose policy reforms to government.
The core of the QPC’s work is to undertake inquiries and investigations of complex economic and regulatory issues to provide objective input into matters vital to the productivity of the Queensland economy.
The QPC is currently undertaking an inquiry into electricity prices in Queensland and is also undertaking an inquiry into solar feed-in pricing in Queensland. It is also responsible for ensuring best practice regulation (including building the capability of departments to produce good quality regulatory impact analysis). This includes ensuring agencies undertake quality assessments of regulatory proposals to support good policy development through the Regulatory Impact Statement (RIS) system. The QPC manages a regulatory complaints enquiries process as a forum for the community to raise regulatory related concerns. It has completed a regulatory impact assessment in relation to the Sugar Industry (Real Choice in Marketing) Amendment Bill 2015.